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Note: As this matter is getting increasingly involved, updates related to 425 East 86th Street are now on a separate site:http://425East86th.com which also has additional background information about the building. For convenience, this information will remain here for the time being.

Unfortunately, I am involved in another, very different type of adventure – a dispute with our co-op board. After buying our dream apartment from the estate of the noted restauranteur, Elaine Kaufman, a dispute arose with our Co-op board. They concern two independent issues 1) Our rights to inspect the co-ops records; and 2) Our rights and obligations with respect to the roof and terrace of our apartment. The Co-op seems to have argued we don’t have exclusive use of the terrace surrounding our apartment despite what we see as clear language in the lease and other documents. The board also seems to have assigned us significant additional liability beyond what is in the proprietary lease and what has been asked of other shareholders.

We have never sued anyone before in our lives, but our apartment is our single largest investment. We can’t afford to walk away from it. The dispute has become public and much misinformation has been spread. Consequently, we believe it is appropriate to provide the basic documents related to the disputes in a convenient manner. We believe the court filings also document the risks of investing in 425 East 86th Apartment Corp. We hope the sunlight of public disclosure will prove, as it often is, to be the best disinfectant.

I. Financial Disclosure Concerns at 425 East 86 Street:

A. We have concerns about the accuracy and completeness of 425 East Street Co-Op’s (formally “425 East 86 Apartments Corp.”) financial statements for the past few years. Specifically:

A large part of the proceeds from the 425 East 86th Street Co-Op’s 2012 refinancing were paid-out to Standard Waterproofing, a company owned by former board president Frank Chaney‘s brother-in-law, for fasçade and roof work.

At the time, current board president David Munves was treasurer or co-treasurer, and the relationship between Chaney and Standard Waterproofing was not disclosed to shareholders or in the Co-Ops audited financials;

Not only are there questions about the quality of Standard Waterproofing’s work, but there are concerns related to the scope and substance of the limited disclosures about this arrangement belatedly made in 2015;

An analysis of the 425 East 86th Street Co-Op’s Board meeting minutes at Douglas Elliman’s offices suggests inconsistencies and/or incompleteness between the explanation released in 2015 and the Board meeting minutes. Attached is a detailed follow-up letter to the building’s accountant Shavelson Neuman & Co. on August 18th 2015 outlining those concerns.

Additional concerns are outlined in a follow-up document request these including an apparent lack of disclosure of asbestos liabilities and large discrepancies between sworn affidavits to the city about the cost of major projects and the amounts disclosed on the Co-op’s audited financials. The board president’s disappointing responseto my request.

It would be cost prohibitive to allow the building’s accountant to respond to requests from individual shareholders. I may ask the managing agent (who unlikely knows the details of GAAP including ASC 850 which details required related party disclosures), but it incorrectly argues that the request is related to information we demanded in a subpoena they are challenging, so the managing agent won’t discuss the issue with me in any case.

Remarkably, the letter also says that NY Corporate Business Law nullifies the Co-Op’s contractual obligation in paragraph 5 of the proprietary lease to allow shareholders to inspect the Co-Op’s books of account. Such a statement, in my view, says volumes about the Co-Op’s approach to transparency and corporate governance.

K. Update (5/25/16): After significant back and forth, the Co-op allows us to inspect copies of a sub-set of its books and records. Unbelievably, they actually paid a Statin Island security firm, EOT Associates, to send a retired NYC police detective, Kenneth Rinaldi, to sit in the room the whole time and hover over us while we read! It was an obvious attempt to intimidate us. It would have been funny, it it hadn’t cost shareholder a few thousand dollars. The information we reviewed further supported our concerns about the Co-op’s accounting practices and left us with several additional questions about the Co-op’s lack of disclosure regarding environmental issues. We will be following-up on these.

M. Favorable court decision (5/2/2017). Coop must provide access to both sides of general ledger and allow us to make copies etc. This is a significant step forward for NY Coop shareholders. Hopefully it provides guidance for responsible Coop boards and avoids the need for other shareholders to go through this process.

II. Roof-Terrace Litigation – 425 East 86th Street:

Shortly after we moved in, we were told the board passed new rules that would place large additional obligations and liabilities on us related to the roof terrace area outside out unit. We understand, from our attorneys and real estate brokers who have looked into the details, that these new obligations make our apartment generally unsellable. We were unable to reach any agreement with the Co-op and were forced to litigation, something we have ever done before in our lives.

As one can see below, an enormous amount of legal resources has been spent on a rather simple issue of contract law. We believe the Co-op board is trying to stonewall us into caving under the pressure of legal fees as opposed to seeing an equitable resolution to a problem. Given the magnitude of our investment, we have little choice but to continue. Prior to litigation, the Co-op board even turned-down their own long-time attorney’s proposal that would have settled the issue at minimal expense – a proposal we accepted! The Co-op board also terminated court-ordered mediation, even though the mediator seemed to be making significant progress.

Even more troubling is that the Co-op’s legal document and court statements seem to deny we have exclusive use of the terrace that wraps around the apartment, despite a prior board decision that settled the matter! We never expected to have to expend years of litigation to defend our investment from the actions of the Co-op board.